Funding for Lending extension to 'boost credit access'

Growing businesses in Britain received a boost this week as the government and the Bank of England announced an extension to Funding for Lending Scheme (FLS) and a widening of the types of business finance it is to include.

FLS will at first continue for an extra year, ensuring that lenders can make the most of it until January 2015. It is also being expanded to include lending by banking groups linked to financial leasing corporations and factoring corporations, as well as some mortgage and housing credit corporations, as these are important sources of capital for small and medium-sized enterprises (SMEs).

Meanwhile, every net pound that is spent on credit for SMEs in 2013 will be worth an extra £10 in their borrowing allowance through FLS in 2014. Overall, this should incentivise banks to lend more to SMEs.

John Longworth, director general of the British Chambers of Commerce, welcomed the move, stating that it shows how Chancellor George Osborne and the Bank of England is listening to the demands of Britain's business community through alleviating the otherwise tight credit conditions.

"We are particularly encouraged by the fact that incentives for SMEs lending have been sharpened, and that the new-look FLS will cover sources of finance beyond the banks, including asset-based lenders and invoice discounters," he said.

Mr Longworth also welcomed the widening of finance that will be covered by the scheme and enhancing of incentives that will encourage lending to SMEs. However, he remains cautious, stating that its success depends upon "appetite for risk" among lenders, rather than just handing credit to "safe bets".

"The Chancellor and the Bank of England can, and should, go further," he continued.

"Were they to extend the backing of the Funding for Lending Scheme's billions to the embryonic Business Bank, they would energise a new and crucial player in the lending market, and help to solve the long-term structural gap in finance that continues to strangle far too many growth businesses across the UK."

IHS Global Insight has said the benefits of the FLS extension will become much more clear if the economic backdrop in the UK improves, which will boost overall confidence among companies and lenders.